Deforestation holds $906bn supply chain risk

The value of global products and services that depend on commodities linked to deforestation has been calculated at $906bn.

In a report the Carbon Disclosure Project (CDP) said this revenue was at risk because the commodities in question – timber, palm oil, soy and cattle – are not sustainable when they lead to deforestation.

The report said firms needed to improve their risk assessment and procurement processes and work more closely with their suppliers and peers. It said company boards needed to take more responsibility for managing deforestation risk.

In the survey, CDP asked firms what percentage of their revenue depended on timber, palm oil, soy or cattle products. It then calculated the financial value based on public annual revenue reports.

It said these four commodities are carrying the most responsibility for deforestation.

CDP said it sent questionnaires to 821 firms and received 201 responses from companies including Unilever, Nestlé and L’Oréal.

It said many firms were overconfident in the sustainability of deforestation-risk commodities.

Almost three quarters (72%) of respondents said they had identified a sufficient sustainable supply of commodities across the four at risk areas. However, CDP said firms closest to the top of the supply chain were already experiencing the affects of deforestation.

Four out of five (81%) companies in the agricultural production sector and 41% in food and staples retailing said the affects of deforestation had “generated a substantive change in operations, revenue or expenditure” over the last five years.

CDP also said many firms failed to correctly assess the size of the risk that deforestation posed to their supply chains.

“Our analysis shows that, while deforestation is recognised as a risk, it is too often considered in isolation rather than as part of a comprehensive risk assessment, meaning that its potential full impact on a company is underappreciated,” it said.

Less than half (47%) considered deforestation as part of their company-wide supply chain risk assessment, the report said, and only 56% of manufacturers and retailers look beyond their first tier suppliers.

The survey found that only one in five companies had assessed the risks deforestation posed beyond six years, and fewer than half (42%) had considered how their growth strategies could be affected by changes in the availability or quality of commodities, caused by deforestation, in the next five years.

Of the firms surveyed that did have procurement standards in place, only 44% actually monitored compliance and audited suppliers across commodities, the report said.

“Major companies should request – and then require – that their suppliers disclose information about deforestation risks and opportunities. Such transparency should be a first step in collaboration,” the report said.